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Eddie_George

Bubblecovery: Why Our Economic Recovery Is Actually An Illusion

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As global stock and housing prices continue to climb, an increasing number of people are becoming “true believers” in the economic recovery. But what if the recovery is really a “Bubblecovery”?

Bubbles

Bubblecovery is a term that I coined to describe a bubble-driven economic recovery. According to my research, growing post-2009 economic bubbles are helping to foster an illusion of economic healing by creating temporary economic growth, new jobs, and rising asset prices.

I also consider the 2003-2007 economic recovery from the early 2000s recession to be a “Bubblecovery”, as the growing U.S. housing and credit bubble led to renewed, albeit temporary, economic growth and job creation in sectors like construction, mortgage lending and other areas of finance.

As with the 2003-2007 Bubblecovery, I expect the current Bubblecovery to cause a devastating economic crisis when the post-2009 bubbles collectively pop. Unfortunately, the next bubble-induced crisis is likely to be even more severe than the last one because the global economy is in a much weaker state than it was in before the last crisis started.

Highlights:

China, Emerging Markets, Canada, Australia, Northern and Western European housing, Bonds, U.S. Higher Education, U.S. Healthcare, U.S. Equities, U.S. Housing Bubble 2.0, Tech Bubble 2.0

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The problem is that Bubbles are nice- everyone loves a bubble- all this stuff about taking away the punch bowl overlooks the fact that by the time you need to do it everyone is too pissed to care.

George Bush Junior may have been the dumbest man to ever have his hand on the nuclear button but in one respect his single unscripted comment on the financial meltdown of 2008 was spot on-he said 'Wall Street got drunk'.

Carney has literally just walked away from a Bubble in Canadian housing that is even bigger than that in the US- so any idea that he or his merry men at the BoE will 'step in' and take away that punch bowl is delusional in my opinion.

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Bubblecovery is the economic norm of the last 30-40 years isnt it? From 1930 to 1970 there didn't seem to be much in the way of bubbles and the economy grew nonetheless.

Perhaps because for this period the UK had a monetary system and banking system that rewarded prudence and savings. Imagine the efficiencies that would have been made if the UKs potential for debt had been restricted for the past 40 years.

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Perhaps because for this period the UK had a monetary system and banking system that rewarded prudence and savings. Imagine the efficiencies that would have been made if the UKs potential for debt had been restricted for the past 40 years.

Our governments have always preferred money printing, asset bubbles and cheap (mainly immigrant) labour rather than investing in efficient methods of producing wealth

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Our governments have always preferred money printing, asset bubbles and cheap (mainly immigrant) labour rather than investing in efficient methods of producing wealth

Yes but prior to the 70s it was very difficult. Only after Bretton Woods failed in the early 70s have the great western powers been able to devalue the currency at will and sell their people into debt servitude.

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The problem is that Bubbles are nice- everyone loves a bubble- all this stuff about taking away the punch bowl overlooks the fact that by the time you need to do it everyone is too pissed to care.

George Bush Junior may have been the dumbest man to ever have his hand on the nuclear button but in one respect his single unscripted comment on the financial meltdown of 2008 was spot on-he said 'Wall Street got drunk'.

Carney has literally just walked away from a Bubble in Canadian housing that is even bigger than that in the US- so any idea that he or his merry men at the BoE will 'step in' and take away that punch bowl is delusional in my opinion.

this is non sense; it was never the banks fault; banks were only following the money as they always do; same as with the Internet or Tulip bubles

it is every government responsibility to keep inflation about 3%; the governments created the asset bubles in housing with 20/30% inflation pa across the globe

if the interest rates were put up to 7% in 2002 there will be no problems what so ever

by definition the banks and all other enterprises ignore economical cycles as they are only focused on next 5 years max

it is the governments and central banks responsibility to cool down the economical cycles to keep the inflation (including the houses and stocks) to healthy 3% pa

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Should like to point out that there is very little distinguishing "fiscal stimulus" from "asset bubbles" in terms of economic growth. Fiscal stimulus is demand paid for by state borrowing - this demand creates new economic activity - and the hope is that value of the new activity exceeds the repayment of the new borrowing so will therefore create economic growth. Asset bubbles make the owners of the assets richer - this creates extra demand which creates new economic activity - and again the hope is that the value of the new activity exceeds the drop in asset values when the bubble burts. In either case the crucial point is not whether borrowing or asset bubbles finance the new demand - but whether the value of the new activity is greater than the cost of producing it - i.e. whether the "Keynes multiplier" is greater than 1.

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Should like to point out that there is very little distinguishing "fiscal stimulus" from "asset bubbles" in terms of economic growth. Fiscal stimulus is demand paid for by state borrowing - this demand creates new economic activity - and the hope is that value of the new activity exceeds the repayment of the new borrowing so will therefore create economic growth. Asset bubbles make the owners of the assets richer - this creates extra demand which creates new economic activity - and again the hope is that the value of the new activity exceeds the drop in asset values when the bubble burts. In either case the crucial point is not whether borrowing or asset bubbles finance the new demand - but whether the value of the new activity is greater than the cost of producing it - i.e. whether the "Keynes multiplier" is greater than 1.

I see. Thats why Zimbabweans are so wealthy. Thanks for clearing that up for me.

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I see. Thats why Zimbabweans are so wealthy. Thanks for clearing that up for me.

Is the Zimbabwe analogy related to inflation? Inflation is not the same as asset bubbles, is it? And in any case, the question is not whether you are actually richer when you own assets caught in a bubble - but whether you feel richer and spend more. It is the boost to demand that drives the argument, not the "reality" of the price-levels.

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this is non sense; it was never the banks fault; banks were only following the money as they always do; same as with the Internet or Tulip bubles

it is every government responsibility to keep inflation about 3%; the governments created the asset bubles in housing with 20/30% inflation pa across the globe

if the interest rates were put up to 7% in 2002 there will be no problems what so ever

by definition the banks and all other enterprises ignore economical cycles as they are only focused on next 5 years max

it is the governments and central banks responsibility to cool down the economical cycles to keep the inflation (including the houses and stocks) to healthy 3% pa

And their numberless crimes of security and accounting fraud, embezzlement and misrepresentation?

In fact, the world's biggest investment banks and their subsidiaries work hand-in-hand with the Fed, the BoE, the BoJ and the ECB; they are the Primary Dealing Banks and Gilt-Edged Market Makers: the central banks' eyes and ears on the market at all times.

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Is the Zimbabwe analogy related to inflation? Inflation is not the same as asset bubbles, is it? And in any case, the question is not whether you are actually richer when you own assets caught in a bubble - but whether you feel richer and spend more. It is the boost to demand that drives the argument, not the "reality" of the price-levels.

How can you have a bubble without inflation?

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How can you have a bubble without inflation?

Don't think you can - I don't really know exactly how a house-price bubble affects inflation directly but with extra mortgage costs etc there will be indirect effects - in any case the inflated prices will manifest themselves in inflation sooner or later. You can have inflation without a bubble however - bubbles are simply inflated asset prices not supported by "fundamentals" - but the "fundamentals" must be valued against some benchmark like the general price level. So if all prices inflate by the same amount there is no asset bubble, right?

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this is non sense; it was never the banks fault; banks were only following the money as they always do; same as with the Internet or Tulip bubles

So when the bankers packaged and sold subprime debt as triple A rated securities this was just good clean fun on their part- they were just caught up in the general exuberance?

At what point did fraud become redefined as an excess of optimism?

This 'following the money' argument works just as well for bank robbers or drug dealers you know- they too were failed by the government who failed to sufficiently clamp down on their activities.

The notion that rules exist in order to be circumvented is not really sustainable- we could all claim that our crimes were attributable to a failure of the relevant authorities to act to prevent them- but that is a defense not likely to cut much Ice with the Jury- because we have this quaint notion of personal responsibility- and for any banker reading this post that's a 'moral' concept- it involves the notion that you are personally responsible for doing the right thing- and no- not getting caught is not the same thing.

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